How the 0.001% invest • Hacker News Board

Re: How the 0.001% invest

#191

Post by auiya » Mon, Dec 17, 2018, 9:15 PM UTC

alehul wrote: post #116

barrow-rider wrote: post #103

Earlier quoted context omitted.

Depends on risk tolerance and how flashy they want to be. Donald Trump, if his public finances are to be believed, would have roughly the same net worth had he just invested the money his dad gave him in mutual funds. Instead he managed to create a series of failing companies and questionable ties... but managed to live the high life and stamp his name on bloody everything.

To offer a better and less political answer: the reason that an UHNWI doesn't park their entire net worth in an index fund is because there is some probability, however minute, that the markets will collapse and never recover. Additionally, we could say that success in active investing is (often) a function of how much you're willing to spend to find the right opportunities. For an UHNWI, this is likely enough to bea…

> there is some probability, however minute, that the markets will collapse and never recover.

This is why people invest some money, however minute, into shorting the entire stock market.

Re: How the 0.001% invest

#192

Post by gretch » Mon, Dec 17, 2018, 9:38 PM UTC

jandrese wrote: post #189

gretch wrote: post #185

Earlier quoted context omitted.

My hypothesis of the world is that someone must have luck AND skill to become 100M+ wealthy and I think people commonly create a false dichotomy of luck OR skill. Maybe the reason we never see hundred millionaires lose everything is because they have the necessary skill to manage the money well. I don't think it would be correct to attribute causation based on the information we have available.

This article suggests that their investment strategies may be suboptimal in many cases. Some of it may be the forced diversification you get with this much money. It's hard or impossible to dump $100M into a single stock unless you are an Elon Musk type and own the company. So if you make a bad bet and lose a million bucks, well, that's just 1% of your portfolio and the rest will make up for it. Of course you're a re…

I think it's not possible conclude on optimality without firmly understanding the specific goals.

The articles says 'But the aim is usually to diversify risk, not concentrate power, by taking capital from the original family business and putting it into a widely spread portfolio.'

It uses the word 'usually' and it's also a blanket that's trying to generalize all these parties, while in a reality that may not be true.

Here are 3 constructed but plausible goals one may have: 1) Make 100% sure that you remain wealthy (make almost nothing but never lose anything) 2) 9-in-10 chance to do worse than SP500 index, but 1-in-10 chance to get 'literally take over the world' rich 3) Investing in causes that seem good for the world a la green energy, tesla motors, etc

As a counter example, I present cases of lottery winners who go broke. There are multiple documented cases of 10+ million and 100+ million winners who lose the majority of their wealth.

Re: How the 0.001% invest

#193

Post by Scoundreller » Mon, Dec 17, 2018, 9:51 PM UTC

whatok wrote: post #109

savanaly wrote: post #106

Earlier quoted context omitted.

>They said this is partly because they get access to deals that don't hit the wider market and you need serious cash to get in the room to have that chat. This is something I hear a lot and I just don't get. Are the people on the other side of those deals just...not greedy? After all, you are implying that the deal has better expected returns than what people are buying on margin in public markets, so why doesn't the…

The sole reason that the path to public markets is a long and compliance-ridden one is enough to seek private investment. It's much harder to raise money in public markets than private ones.

But far cheaper to raise money in public markets than private.

Once you’re big enough, IPOing makes sense, unless you just want to maintain control or those pesky compliance requirements will reveal some harsh secrets.

Re: How the 0.001% invest

#194

Post by Scoundreller » Mon, Dec 17, 2018, 9:55 PM UTC

mikestew wrote: post #124

savanaly wrote: post #106

Earlier quoted context omitted.

>They said this is partly because they get access to deals that don't hit the wider market and you need serious cash to get in the room to have that chat. This is something I hear a lot and I just don't get. Are the people on the other side of those deals just...not greedy? After all, you are implying that the deal has better expected returns than what people are buying on margin in public markets, so why doesn't the…

Is it because the rich investors are needed to bring some level of expertise or connections to the investment to make it work? My first thought was regulation. See: accredited investor. One can sell to accredited investors, and caveat emptor, or get buried in a whole new ass-load of paperwork and butt-microscopes selling to retail. My second thought was scaling, or selling in volume. Why do companies sell wholesale?…

The last bit is a solved problem.

They’re called “bought deals”. An investment bank has a public-traded equity desk that will buy, up-front, $x billion of your stock at $Y. Then they’ll email blast/call their retail investors to buy it up over the next few weeks.

The banks take the risk of not filling the order with retail buyers, which happens occasionally.

Re: How the 0.001% invest

#195

Post by Scoundreller » Mon, Dec 17, 2018, 10:00 PM UTC

whitepoplar wrote: post #68

mruts wrote: post #62

Earlier quoted context omitted.

I've seen the portfolio's of dozens of family offices (I worked at a portfolio analytics company so I had free reign to snoop around), and none of the offices seemed competent. The returns were terrible and the portfolio construction laughable. Instead of striving for out performance, the funds just catered to the whims and idiosyncrasies of the family. Also, many of these funds were too small to make sense, AUMs fro…

My guess is that most UHNWIs would do better to simply park their money in Vanguard index funds and call it a day.

Risky if you’re non-American but could be liable for US estate taxes if you die before you move everything ex-US.

You may have a local equivalent, but you may not.

Re: How the 0.001% invest

#196

Post by Scoundreller » Mon, Dec 17, 2018, 10:02 PM UTC

auiya wrote: post #191

alehul wrote: post #116

Earlier quoted context omitted.

To offer a better and less political answer: the reason that an UHNWI doesn't park their entire net worth in an index fund is because there is some probability, however minute, that the markets will collapse and never recover. Additionally, we could say that success in active investing is (often) a function of how much you're willing to spend to find the right opportunities. For an UHNWI, this is likely enough to bea…

> there is some probability, however minute, that the markets will collapse and never recover. This is why people invest some money, however minute, into shorting the entire stock market.

Why have equal and opposing holdings when you could hold cash?

Re: How the 0.001% invest

#197

Post by njarboe » Mon, Dec 17, 2018, 10:03 PM UTC

dev_dull wrote: post #101

desdiv wrote: post #81

Earlier quoted context omitted.

VIIIX's[0] Institutional Plus Shares (with a $100 million requirement) has an expanse ratio of 0.02%, so that's $200k. It would be hard to find someone at this salary level who can match the tracking performance of Vanguard. If they achieve a tracking error that's 1% higher than that of Vanguard's, that would mean an annual loss of approximately $800k compared to Vanguard (1,000,000,000 * 8% * 1%). [0] https://instit…

This really is a no brained. With such a small fee with such a large investment you’d be extremely hard pressed to beat that performance (if all you wanted was to match an index).

Plus you can directly control the access to the account yourself. One fewer middleman to possibly scam you.

Re: How the 0.001% invest

#198

Post by Scoundreller » Mon, Dec 17, 2018, 10:25 PM UTC

CompelTechnic wrote: post #66

ThrustVectoring wrote: post #39

Back when I was fantasizing about what I'd do if I won the lottery, I looked into family offices a bit and concluded that there's basically no point as far as the investing advice goes. It's still likely a good idea for some of the ultra-wealthy for estate, tax, and philanthropic purposes, but on the investment side? The standard passive indexing approach used by middle class individuals scales in a cost-effective ma…

There is one point you haven't considered: Even though a pure indexing strategy is appropriate, it is not appropriate to use Vanguard for this. At the billion-dollar level, assuming that the index funds had an expense ratio of .05% (among the lowest out there) you would be paying annually: 1,000,000,000*.0005 = $500,000 For that level of expense, you could instead have a one-man office or other service provider that…

Don’t forget: keeping track of the dividends and cost bases of a hundred or thousand stocks will heavily impact your accounting/bookkeeping bill each year.

And once you talk about foreign stocks, you have different amounts of withholdings to account for, dividends that are not dividends (return of capital).

Re: How the 0.001% invest

#199

Post by Scoundreller » Mon, Dec 17, 2018, 10:28 PM UTC

tanderson92 wrote: post #94

sokoloff wrote: post #71

Earlier quoted context omitted.

VTSAX is 4 basis points of expense ratio. There are others with 3 bps and Fidelity has one with 0. Even at 5 bps on a billion, I think you'd be extremely hard pressed to do everything Vanguard does for you for $500K/yr. I'm at least a factor of 500 away from having to consider this question, but if you told me it would cost me $500K to have one fewer critically important person on my staff to deal with, that would be…

There is additional value that can be added by forgoing an index fund, though. Tax management can be enhanced by rolling your own Total Stock Market index fund, since individual names can be harvested for capital losses, increasing the after-tax returns of your portfolio relative to a vanilla index fund. I'm not sure quite how to quantify that, but I'm sure someone has been able to do so.

I thought you were only able to write-off $3k in capital losses per year against income?

If so, not worth dealing with for a billionaire, but definitely an opportunity for a middle-class robo-advisor.

Re: How the 0.001% invest

#200

Post by sokoloff » Mon, Dec 17, 2018, 10:30 PM UTC

Scoundreller wrote: post #199

tanderson92 wrote: post #94

Earlier quoted context omitted.

There is additional value that can be added by forgoing an index fund, though. Tax management can be enhanced by rolling your own Total Stock Market index fund, since individual names can be harvested for capital losses, increasing the after-tax returns of your portfolio relative to a vanilla index fund. I'm not sure quite how to quantify that, but I'm sure someone has been able to do so.

I thought you were only able to write-off $3k in capital losses per year against income? If so, not worth dealing with for a billionaire, but definitely an opportunity for a middle-class robo-advisor.

You can write off capital losses up to the amount of capital gains plus an additional $3K. So, if you have $5MM in capital gains, especially short-term, it makes sense to sell off up to $5MM in capital losses.